Dumb real estate contract question.

Discussion in 'General' started by beechkingd, Oct 8, 2019.

  1. beechkingd

    beechkingd Well-Known Member

    We're looking at buying a different house and I'm hung up on the last sentence in this section. We're doing a contingent contract on the sale of our house. They're asking for a 1% escrow. I'm sure I'm reading this wrong, but if for some reason we fail to get financing would that cause us to fail to settle? The way I'm reading this the first paragraph makes it sound like if we don't get the loan to go through the contract is canceled. The second makes me think I won't get my escrow back. We are pre-qualified but I'm not to keen on risking the escrow if there is any chance of loosing it for something dumb.


    D. Financing Contingency and Application. This Contract X is (addendum attached) or __ is not contingent on financing. If this Contract is contingent on financing: (i) Buyer will make
    written application for the financing and any lender-required property insurance no later than seven (7) days after Date of Ratification; (ii) Buyer grants permission for Cooperating Brokerage and the lender to disclose to Listing Brokerage and Seller general information available about the progress of the loan application and loan approval process; and (iii) Seller agrees to comply with reasonable lender requirements.

    If Buyer fails to settle, except due to any Default by Seller, then the provisions of the DEFAULT paragraph shall apply.
     
  2. Mongo

    Mongo Administrator

    You're asking them to take their property off the market while you obtain financing and sell your house so yeah, they want to get paid if you back out on them.
     
    badmoon692008 and Chris like this.
  3. beechkingd

    beechkingd Well-Known Member

    That's the way it reads to me too. Our agent says that isn't the case, and if I google it I keep finding things that say I will get it back as well.
     
  4. YamahaRick

    YamahaRick Yamaha Two Stroke Czar

    Your agent is a sales idiot, not a lawyer.
     
    BigBird likes this.
  5. Jedb

    Jedb Professional Novice :-)

    @shakazulu12 Please report to the white courtesy telephone..
     
  6. shakazulu12

    shakazulu12 Well-Known Member

    Depends on the state and if there is more to that section of the contract. Around here, loss of earnest money is actually not assured without mutual agreement from buyer and seller. Though it could potentially sit with the title company forever if both parties don't sign off on it's disposition.

    Regarding the financing contingency, that looks pretty standard. And yes, it reads exactly how you think it does. That being said, around here the agents seldom hold anyone to the earnest money if an honest attempt to obtain financing was thwarted by something that nobody could have predicted. But that is NOT what the contracts state. Usually the people who fail financing find out early in the process. Then make some ridiculous demands in the repair addendum so they can exit the contract during the inspection period with no risk to earnest money.

    Kind of a half answer. But this is a case where what it says and what we do are kind of a grey area and it's been going on for as long as I've been in the industry. But that is specific to my locale. I would get with your realtor and lender and have this discussion with them. There may be local regs that supercede the contract verbiage.

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    Jedb, BigBird and beechkingd like this.
  7. notbostrom

    notbostrom DaveK broke the interwebs

    Key word is contingent. Means if there is no financing there is no contract. You can always ask for an addendum that says in plain 3nglish that deposit is returned if financing isn't secured
     
  8. ClemsonsR6

    ClemsonsR6 Well-Known Member

    The way I explain this to my clients:

    The contract is contingent upon you getting approved financing. If the financing isn't approved, the contract is null and void. Simple as that. It also says that you have a certain time frame to get that ball rolling and that the agents can contact your lender for general updates as to the proceedings of said loan.

    Regarding the escrow money....like Shaka said, it's grey, like charcoal. That's why most agents want Pre-Qualification letters with all offers to ensure that you're not just hoping on the most recent lotto drawing to buy your new McMansion.

    The Default paragraph basically says the parties can go after each other to recover "damages" such as fees for lawyers, credit reports, appraisals, survey's, etc. if the other party walks away. It also says the parties will not hold the Escrow Agent liable. The Escrow agent has a fiscal duty to hold the earnest money until both parties agree it can be released and to whom it's released to. So...yes, your earnest money is at the mercy of both you and the seller agreeing that those funds are returned to you or the seller keeping them. But at the same time, your earnest money is a sign of "good faith" or your actual commitment in purchasing the home and is generally considered as payment to the seller for having their home "off the market" while you screw around in the loan process or due diligence period, etc. costing them a real buyer if you're just day dreaming/kicking tires.
     
    Phl218 likes this.
  9. Exactly. It’s usually time bound as well. When I sold my house last year i had a contract in under 8 hours and had two people wanting it. They both were contingent and one could come up with the $. Like said above it’s also a grey area and depends on rest of the contract. Example ; home inspection and find something that can’t be resolved. You can’t expect someone to take a house off the market without a “deposit”, imagine how many people would have contracts on multiple houses just to secure them while they got their crap together. In a nutshell it’s telling the buyers you are serious about the house. Also keep in mind a lot of sellers probably have a contingent offer on the house they are buying. I bought my new house with no contingencies as I knew it would sell quick and the wife wanted it. It was a risk I’d have two houses but it was a house the wife wanted and I’m glad I did it the way I did.
     

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